Print this article | Return to Article | Return to CFO.com
Employees have grown increasingly dependent on search firms to fill managerial posts. But not all search firms are up to the task.
Marie Leone, CFO.com | US
April 1, 2003
About two years ago, Melissa Halpert got an unexpected phone call from a well-known executive placement firm.
At the time, Halpert, managing director at New York City-based investment firm Providence Capital, was looking to find a director for one of the companies in the firm's portfolio. Providence Capital often tackles corporate governance issues by taking a financial stake in troubled companies — and such stakes can mean replacing board members.
The recruitment firm told Halpert they could help with the search. Yet, not once during the phone conversation did the consultant get the name of the company right. "The search would have been a complete wash-out," says Halpert.
Halpert claims that most of the recruiters Providence hired over the years never took the time to build accurate candidate profiles, assuming, instead, that the qualifications and personality of a director and CEO are similar. "It's as if the 'Rolodex spin' was their search process," she recalls.
So many engagements went badly, in fact, that managers at the investment fund decided to launch their own directorship search firm as part of Providence Advisors LLC.
While few companies are likely to take such a drastic step, client complaints about executive placement firms abound. Herbert Birman, CFO of business intelligence software maker MIS AG North America, refuses to even deal with search firms anymore.
Why so cranky? In 1998, Birman claims a director at one of the larger recruitment firms "harassed" him after Birman accepted a controller position with food distributor Hartford Provision Co. rather than taking a similar position offered by the recruiter's client. Birman insists that the headhunter actually stalked him, placing an endless series of late-night calls to his cell phone over a period of several weeks.
To be fair, grousing about consultants has practically become the national pastime of corporate executives. And like any other services sector, you'll find both good and bad executive placement firms. The fact is, it's easy to run across good and bad recruiters within the same firm.
Indeed, one Chairman and CFO, Robert Williamson of CityMerch Corp., believes many job searches go awry because corporate clients simply aren't candid about what they want. And in reality, it's nearly impossible for a business to uncover qualified candidates for an executive level position without engaging a top search firm.
Typically, larger companies rely on retained search firms — firms that collect an initial down payment and subsequent installments before a position is filled. The largest multinational retained search firms (collectively known as The Big Four) are Heidrick & Struggles International, Korn/Ferry International, Russell Reynolds Associates, and Spencer Stuart Management Consultants.
Smaller companies, on the other hand, tend to sign up with contingency firms. Those recruiters only get paid only when a vacancy is filled.
Either way, employment experts say clients should not go on autopilot once they've engaged a search firm. While the majority of executive recruiters are eager to find the right candidate for a position, a few appear more interested in collecting a fee than making a match.
Even recruiters say there are some signals that a search firm is not delivering the goods. We asked some of those recruiters, along with executive coaches, employment experts, and corporate executives, to point out the warning signs that could indicate a search is headed nowhere.
What did we end up? Ten sure signs you're being jobbed by your search firm.
1. Your Recruiter Meets Candidates Before Meeting with You
Generally speaking, having a position go vacant for any length of time does not reflect well on a manager. It can also drag down existing workers, who are often asked to pick up the slack.
But filling an empty position just to plug a hole can be a real bad idea. As David Moyer, president of New York-based recruitment firm Moyer Sherwood Associates, notes: "The point is not to put a body in a seat, but to solve a problem."
The providers of the bodies need to follow the same precept. In fact, recruitment experts point out that the most successful job searches are laid out weeks before a recruiter even meets with potential job candidates. In that run-up to actual interviews, a recruiter should be in close contact with the corporate client.
Michael Assaad, regional director for Chicago-based specialty recruiter Ajilon Finance, says the best recruitment firms tend to follow a similar checklist before they start meeting with potential candidates. "Skipping steps to save time or for any other reason," warns Assaad, "will cause unpredictable results." That, he says, could lead to a failed search.
And just what are those steps? A few of the due diligence to-do's (stipulating deliverables, meeting with a client's search team, drawing up a candidate profile) seem fairly obvious.
But beyond those, experts note that a top-notch recruiter will typically deliver an in-depth search plan that details where the firm will look for candidates (personal network, client contacts, similar industries, and the like). Usually, reliable placement firms also draw up initial target lists that identify top talent and their contact information.
While much of this may seem like glorified scutt work, hiring experts say a lack of early preparation can throw a search way off course. Stephen McMahan, group president of Tampa-based staffing firm Kforce Inc., points out that most clients and candidates start out with conflicting goals. Candidates tend to seek job opportunities that offer professional and personal growth, as well as reasonable pay. Clients, on the other hand, want the best for less.
Ultimately, it's the search firm's job to bridge the divide. The bridging becomes a tall task, however, if clients and recruiters are going in opposite directions from the outset.
(To see why some internal department candidates are often passed over for a vacant CFO job, read "The Wrong Stuff.")
2. Stalking Horse, Hidden Point Man
To avoid problems down the road, hiring experts say employers should be watching for signs of problems at the beginning of an engagement. Two classic early signs of pending trouble: the appearance of a "stalking horse," and the disappearance of the person who signed the search contract.
A stalking horse is an unqualified prospect sent by the recruiter to the client. The purpose? To secretly test the accuracy of the candidate profile. While it may be helpful to a search firm, sending out a stalking horse is a lazy way of gathering information from the client — and underhanded, to boot.
Recruiters are quick to point out, however, that a stalking horse is not the same as a benchmark candidate. With a benchmark candidate, the search firm informs both the job seeker — and the employer — that the person is being brought in primarily to help refine the profile.
As for disappearing consultants: insiders say clients should be concerned when a high-level search firm executive makes a sales pitch, attends the contract signing — and then falls off the face of the earth when the search gets underway. Usually, the disappearing consultant fobs off client phone calls, requests, and other inquires to researchers or associates.
Averting the brush-off is not easy, but recruiters say clients should establish early on who will be the contact person at the search firm.
(Read more on customer-service snags.)
3. No Pushback
During the halcyon days of the new economy, a blue chip corporate client of The Directorship Search Group was eager to hire a technology specialist from Silicon Valley. But as Linda Ducruet, managing director at The Directorship, recalls, the search was doomed from the start.
Why? Because the client was offering a puny salary for the position. Worse, the client would not budge from that number — even after Ducruet informed the employer that proposed pay for the job was not even close to market rates.
Ducruet says her client was not happy with her frank assessment of the salary allotted for the job. But the search veteran maintains that it's a recruiter's job to evaluate the market — and to let clients know when their expectations are unreasonable.
In fact, forthrightness can be a sign a recruiter is truly paying attention. For example, McMahan says on several occasions he's caught clients asking for five years of experience "with products that have only been on the market for three years."
Of course, CFOs and HR executives may not be thrilled with tough questions coming from a well-compensated outsourcer. But Kenneth Greger, managing director of Portland-based search firm Greger/Peterson Associates, insists that a client should be suspicious of a recruiter who offers little or no push back during the course of a job search.
The consultant also rightly points out that top candidates generally have no qualms about asking corporate clients some thorny questions. That's particularly true if the employer is going through a rough financial patch, or has been involved in a financial scandal of some sort.
An employer who is caught unaware by such questions isn't likely to make a great impression on candidates. It's the recruiter's job to make sure a client knows the questions are coming — and is prepared to answer them.
Of course, it's not easy for a search firm to deliver bad news to a client. But Barry Honig, president of Honig International in Tenafly, N.J., says recruiters should offer frequent updates to customers — whether the news is good, bad or indifferent. What's frequent? Whatever the recruiter and the client decide, says Honig, although once-a-week phone calls, e-mails, or written reports seems to be about right.
4. Standard Fee, Substandard Guarantee
"The price [of a retained search] is fair, but it's still a sizeable investment," asserts Moyer of Moyer/Sherwood. Then again, he says, "no one uses search firms for the easy ones."
The hard truth is, finding the right executive to fill a top-level post can be an expensive pursuit. And despite the importance of finding the best candidate for a job, the cost of a search can be a big issue to most CFOs.
Generally, retained search firms adhere to the "one-third" standard, says John Mestepey, vice president at AT Kearney Executive Search. That is, search firms charge one-third of the candidate's first year's cash compensation, which includes salary and bonus. Most recruiters also tack on their own travel expenses and the travel expenses of candidates, as well as phone charges, overnight mail service, and dinner tabs.
Some firms are flexible with the fees, dropping their rates to as low as 20 percent — particularly for highly prized customers. Still others require a stiff 40 percent of the candidate's first year compensation.
But the 33 percent rule remains an industry standard. What isn't an industry standard: a contract that does not stipulate that a candidate will stay on the job for a year once an offer is accepted. Mestepey notes that search firms usually guarantee that a prospective hire will stay in a position for a set period of time. Typically, the worker warranty ranges from a year to 18 months. So a three-to-six month warranty is a sign that a search firm is not willing to stand by its work — a bad sign.
If the executive leaves the position while the warranty is still in force, the search firm runs another search — at its own expense. There are a few exceptions, including change of ownership at a company or a substantial change in the employee's responsibilities.
Of course, some CFOs may be unwilling to swallow a 33 percent fee, with or without a warranty. Herbert Birman, CFO of MIS AG North America, says the pricing models of retained-fee recruiters wasn't cost-effective for the $65 million-in-sales company. He points out that MIS regularly hires sales executives at annual salaries between $70,000 and $100,000.
Birman's alternative? The CFO of the privately held, Newark, N.J.-based company uses the self-serve, Internet-based Monster.com to fill all the company's job vacancies.
Birman is not alone. As we've noted, an increasing number of companies are turning to virtual job sites to help fill staff positions.
5. A Small Circle of Friends
Back when he was a Silicon Valley executive (and search-firm client), James Wright says he had real trouble trying to hire a new vice president of marketing for his employer. Why? Four out of the five final candidates the search firm sent him, he recalls, listed CBS Television Network as a current or former employer.
To Wright, that C.V. line item was a sure sign that the recruiter never widened the search beyond his current contacts. "Some search firms try to sell you what they know," warns Wright, "not what you need."
A few early slip-ups doesn't necessarily mean the search firm is off-base, however. Wright, who now runs information technology recruiter Radican Staffing in Providence, R.I., concedes there's a great deal of give-and-take in the selection process. One sure way to gauge how the search is going: the candidates should be getting closer to the mark as the hunt progress.
Search consultant Moyer says clients would be well served to keep track of how many candidates are left over from previous searches. After only a month of investigation, he notes, it's acceptable if a few candidates are pulled from the search firm's existing files. But by the second month of the engagement, all candidates should be culled specifically for the current search.
How to spot recycled candidates? Ask the search firm if the candidate was developed for your specific assignment, and how they found the candidate. Then, during interviews, ask candidates how long they've worked with the search firm and when the search executives contacted them.
6. Not Up-Front About Hands-Off
Twenty years ago, search executives seemed more like magicians than management consultants. Moyer, who opened his own shop in 1991, recalls how recruiters would show up for a client meeting, scribble down information, disappear, and rematerialize with a slate of candidates weeks later. "It was a black art," he jokes.
Not any longer. Transparency is the real trick to successful searches these days, says Los Angeles-based executive agent, Neal Lenarsky of STI. But even Lenarsky concedes that not all search firms are as clear about their practices as they could be.
Take the so-called hands-off policy. A standard promulgated by the Association of Executive Search Consultants (AESC), the policy dictates that a search firm refrain from recruiting from existing clients (generally, for one to two years after completing an assignment).
Veteran recruiters say the policy can be a real hindrance for large multinational search firms — firms that generally have extensive client rosters. Conversely, the hands-off policy gives small boutique firms a bit of a leg up, since they tend to run into fewer conflicts of interest when lining up job candidates.
Still, hiring experts note that big search firms maintain big data bases, and thus have access to far greater pools of executive talent. Problems do arise, however, when a recruiter is less than forthcoming about its hands-off policy. In fact, industry insiders confirm that clients are sometimes completely unaware that such a policy exists.
That can spell trouble, particularly when an employer does not know that certain companies — or even sectors — are off-limits to a recruiter.
IBM's board of directors was apparently aware of this ethical restraint placed on recruiters when it reportedly hired two executive search firms to help find a new chief executive in 1993. Heidrick & Struggles eventually led IBM to Lou Gerstner, who signed on as the company's new CEO.
Then again, not all companies have the financial wherewithal to bring in two recruitment firms for one search. For companies with more modest means, Lenarsky recommends that an employer discuss a recruiter's hands-off policy before inking a search deal. In addition, Lenarsky advises corporate clients to ask to see a list of a search firm's clients from the past two years.
(Read more about why transparency is also touted as a sign of good financial reporting in "Your Finance Department is Second-Rate.")
7. Bounced Background Checks
In extreme cases, superficial background checks of prospective hires can lead to lawsuits and embarrassing headlines.
Miami-based Mt. Sinai Medical Center, for example, recently sued recruiter Heidrick & Struggles International for the failed performance of an administrator. The hospital alleges that the search firm should have known and revealed that the administrator apparently had a track record of mismanaging the finances of other hospitals.
In another case, Chicago-based ad agency Fox Associates Inc. sued contingency search firm Robert Half International for placing a convicted embezzler in its midst — an embezzler who then stole $70,000 from Fox. A judge threw out the suit, however, noting that a recruiter "is in the talent business, not the criminal investigation business."
Richard Reibstein, a partner with Wolf Block Schorr and Solis-Cohen LLP, says there's real only one way an employer can ensure that a senior level candidate has gone through an exhaustive background check: do it yourself. "Since when do [experienced executives] rely on someone else to evaluate something as important as an senior-level hire?" he asks.
If a company does ask its search firm to conduct a background check, research expert David Carpe says the client needs to know how the investigation is being conducted. Employers don't always realize, for instance, that search firms often farm out background checks to research firms.
They come up to speed quickly, however, when a subcontractor breaks the law. According to Carpe, a principal at Clew LLC in Boston, some outsourced researchers use computer system hackers to gather intelligence on candidates. Others misrepresent themselves on the phone (a tactic known as social engineering). Both approaches are illegal.
(Read more about social engineering.)
8. Too Many, Too Fast
Fast hires often turn into bad hires, placement experts say. In fact, all the recruiters and executives interviewed for this article said it takes more than two weeks — and often two to three months — to find a high-level candidate who fits a company's business focus and culture. But be forewarned: such an approach eats up time. Carpe insists that thorough searches call for "donut research." Basically, the researcher triangulates the search by focusing on a prospect's industry, company, and personal contacts.
A sharp search firm also will request a list of "carve out" candidates from the client. These are executives the client has already interviewed — or has identified as prospects. Carve-out candidates should not be presented as part of the search, says Radican's Wright.
Indeed, keeping the number of interviews down to a manageable lot makes for a more productive search, especially since a growing number of recruiters have adopted more time-consuming behavioral interviews.
For mid-level positions, executive recruiter Honig believes a client doesn't need to see more than a half dozen candidates. For senior jobs, he says 20 or 30 candidates are sometimes needed.
That is, when you can find them. For C-level positions, Honig says there is often a small universe of qualified candidates.
9. Not Hard Enough on Soft Issues
If you think the human factor doesn't play a crucial role in the hiring of a new employee, consider this tale:
About three years ago, a private, mid-size maker of computer systems for manufacturing plants initiated a search for a COO. According to Robert Williamson, former CFO of the manufacturer, the board tabbed the company CEO to be the client liaison on the project, which was led by Big Four placement firm Heidrick & Struggles.
Seems like a simple enough task. And it would have been — if the CEO actually wanted to fill the position. But as the company's board found out later, the chief executive wasn't the least bit interested in hiring a COO. This left the placement firm in the unenviable position of finding the perfect candidate for a post that would never be occupied.
Williamson, who has been a director at several small and midsize ventures, says divergent opinions among management and board members are common in managerial-level job searches. Often, a conflict isn't addressed until after the company has spent a sizeable amount of time and money on a search. Williamson, currently CFO of CityMerch Corp. in Miami Beach, believes much of the problem lies with clients who aren't candid about what they want — until it's too late.
But recruiters also bear some responsibility when soft issues bedevil a search. The fact is, placement firms are hired to make sure job hunts go smoothly — and part of the task involves defusing personality clashes before they short-circuit the process. Employment experts say a recruiter who seems disinterested in the temperament of a candidate — or the candidate's prospective boss — is letting down on the job.
Getting a handle on the emotional make-up of prospective hires is so important, in fact, that many search firms conduct personality tests on candidates before they even make it to the interview room. Such analysis, called psychometrics, can indicate that a search firm is going above and beyond its obligation.
For companies, psychometric testing should be standard practice for top-level hires. "Companies that don't use [psychometric] assessments won't make it from the talent perspective," says Michael Spremulli, president and CEO of human resources consulting firm The Chrysalis Corp. "They will simply wind up in a cycle of non-retention."
And that's a tough pattern to break. As one consultant points out, employers tend to be suspicious of candidates who've jumped from company to company. Likewise, candidates are extremely suspicious of an employer that can't seem to hold on to its employees.
(For a review of the ABCs, read "That Good Old-Time Retention.")
10. A Parade of Paper Tigers
An inaccurate candidate profile spells trouble, often producing a string of mediocre and incompatible interviewees. In search firm parlance, truly unsuitable applicants are called paper tigers.
While paper tigers tend to look good on...well...paper, the candidates simply don't measure up in person — or personality. Ironically, Kforce's McMahan notes that these prospective hires often possess the requisite skills and experience for a job. But, he adds, they tend to be horribly mismatched in terms of corporate culture or temperament.
The examples are endless. One headhunter tells the story of an operations veteran who was motivated by entrepreneurial challenges — but wound up interviewing for a job at a company that was exceedingly risk-averse. Another recruiter recounts the time a Boston-bred, liberal Democrat CFO interviewed at a company run mostly by conservative, Republican Southerners.
Admittedly, even the best placement firms send out the wrong candidates on occasion. But hiring experts say if you find yourself interviewing a string of paper tigers, chances are your executive recruiter is either a) handling too many clients, or b) in the wrong line of work.
Conversely, dependable search firms make every effort to minimize mismatches. Many kick off a search with interviews of potential bosses, subordinates, and peers. Those interviews help create a 360-degree view of the job to be filled. Such meticulousness helps a recruiter develop an accurate candidate profile — one that takes into account things like corporate culture and interpersonal dynamics.
Recruiter Greger also warns clients to be on the lookout for what he calls "marquee candidates." These executives and managers usually come with great corporate pedigrees and skills, but with little else to recommend them for a particular job.
At the height of the Internet boom, Greger says marquee candidates were in great demand at startups and other burgeoning businesses. Companies were snatching up executives solely because they were alumni of Oracle, Cisco, Microsoft, or a handful of other high-profile tech companies.
But as Greger points out, the skills that make an executive successful in one environment don't necessarily play in another. Recruiters say regardless of experience and education, a candidate must fit the job — and not the other way around.